Different Setups in Different Markets | Podcast Episode #177

0:07
Hey, I’m Ryan Mallory, and this is my Swing Trading the Stock Market. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey, everybody, this is Ryan Mallory with Swing Trading the stock market. You know what? It’s been a while since I’ve done my last podcast. You’re used to me doing about 2 of them a week and I’ve taken a week off, but it was for good reasons. I got married, got married to the love of my life and I’m very excited about. That and I moved, moved my office as well. So there’s been a lot of activity in this past week, week and a half, and I’m excited to get back to a somewhat normal routine.

0:57
But yes, I hadn’t forgotten about you guys. I just had to get married, make sure she didn’t get away from me. And today’s podcast is a good one. It comes from a member of the SharePlanner trading block. His name I’m going to give him is Buster, and Buster writes, I know you have talked about how you make some of the decisions based on how the market is doing overall, that is not wanting a lot of positions when you’re not certain what the market is going to do or what the ultimate direction is.

1:25
I was also curious about whether you found that certain types of patterns. Or setups are more or less effective in certain types of markets trending versus choppy, for example. Case in point, I was wondering if breakouts are a little bit more difficult to trust when the market is going sideways because it might come back down with the market, or maybe a good setup is a good setup irrespective of the types of overall market.

1:50
Well, I think this is a really good question because I do notice that some trade sets. Do work better in different types of markets and we’re gonna get into this one here. I’m first going to talk about it from a very basic and simple approach, and then I’m gonna dig deeper into this particular subject matter and we’re gonna dive deeper into the more intricate aspects of the trade setup versus the kind of market that we’re trading in.

2:14
But first, the bourbon of choice for this episode is a good one, guys. This one is Old scout, it’s made by. Smooth Ambler, if you guys have tried this in the past, you know what I’m talking about. This is a really, really good one. In fact, one of my buddies, he told me, he says, Ryan, you can’t review this until I get myself like 3 or 4 bottles of this stuff.

2:33
I’m afraid that you’re gonna go on to the podcast, you’re going to tell people to go buy this thing and it’s going to get hot and I’m not gonna find it in stores anymore. Well, I gave them a little bit of time, but anyways, this old scout, it’s good. It’s. Really good. It’s very smooth. It’s got like a, uh, very sweet, smooth taste at first.

2:54
I mean, it’s good. I would say it’s not too far out of reach from being a Blanton’s type of bourbon. In fact, the reason why I found out about it is I went to one of my favorite bars in town. It’s called Crush 11, and the bartender there who knows me, he says, Ryan, you gotta try this stuff. This stuff is amazing. And I tried it and I was like, I gotta find it. Stuff. So I went to ABC, couldn’t find it, went to Publix’s liquor store, could not find it, found it at Total Wine. It’s got a price point of $44 there, which is incredible. To me, this is the best deal out there. And no, they’re not paying me to say this stuff.

3:27
I’m just telling you, this is a good bourbon. But yeah, you get that smooth taste and then it like pauses just for a little bit then it pops you with a little bit of heat right at the end. It’s really cool. It’s really a good, good drink. So for this, I’m giving it an 8.6%, and that’s a pretty high score. And like I said, I think it’s the best bourbon for the dollar. But back to what Buster is talking about here. If we’re looking at it from the most basic standpoint, in a bull market, what works the best? It’s gonna be your bullish setups, right? In a bearish market, is the bullish setups going to work as well?

4:00
No, they’re not. In a bearish market, obviously, the bearish setups are gonna work the best. So we have a general framework here that we’re working with. Bullish setups work in bullish markets, bearish setups work in bearish markets. So, It goes back down to the top down trading strategy that I always am talking about that you want to make sure that your trading setups are in line with the industry that you’re trading, the sector that you’re trading in, and also with the market in general because if you’re finding these great breakout plays in the markets dropping 5, 10, 15% over the course of a couple of months, those trade setups are probably not going to work for you, so you want as many things aligned in your favor as possible and.

4:37
Now, the point of this whole thing is not to talk about the top-down trading strategy, but it’s more or less to reiterate how, yes, trade setups and different types of markets are going to work better versus other market conditions. So let’s drill down a little bit further. You have the bull flag pattern, and for those who don’t know what a bull flag pattern is, it’s hard to show you without being able to put a chart in front of you, but just to make it simple for the sake of this podcast, it’s essentially when the stock has made a good run high.

5:02
And then it starts consolidating, maybe even drifting slightly lower on light volume over the course of maybe on a daily chart, maybe 1 to 2 weeks. It can be longer, it can be shorter, but generally it’s like 1 to 2 weeks, and then it breaks out to the upside and you play that break out of the bull flag. It looks essentially the price action does looks like a flag hanging on a flagpole, blowing in the wind.

5:22
And so when do those work the best? Well, they’re usually gonna work the best in strong trending markets. So you get a bull flag on a particular stock, let’s say it’s Apple, and you got a stock market that’s consistently put in higher highs and higher lows and just consistently getting the dip bot, those bull flags are going to work.

5:39
Breakout plays are gonna be phenomenal. You get a continuation triangle, that’s gonna work pretty good. But then you take the market that we’re in right now and it’s a very difficult market. Yeah, we’re sitting right at all time highs. But the volume is decreasing quite a bit. There’s much less conviction.

5:54
If you look at the T2108 indicator and it’s an indicator that I love to reference, it measures the percentage of stocks trading above their 40 day moving average. Well, you have a stock market that’s basically printing all-time highs right now, but you have a T2108 indicator that says only 50% of stocks are trading above their 40 day moving average, and that makes it to where there’s not a lot of stocks participating.

6:18
And this market rally, and oftentimes that can be a very diverging bearish indicator that says, hey, when the stock market’s making new all-time highs and you’re seeing less and less stocks participating in it, it probably means at some point there’s going to be a top put into the market, whether it’s short term or long term, there’s something significant about to happen.

6:35
And if you’re wondering, hey, how do I get some of this analysis on the S&P 500 on your individual trade setups and all this other stuff that you have to offer, check out swingtradingthestockmarket.com, there I’m gonna. you guys with all of my analysis on the S&P 500, the Russell 2000, the NASDAQ 100, as well as my own indicators that I use.

6:52
On top of that, I’m gonna give you an update each week on all the Fang stocks that also includes Microsoft and Tesla, and daily trades that’s given to you each and every day, as well as the most intriguing charts that I come across during the trading session. And I’m gonna update for you once a week my watch list. So, both for Bullish and Bear stocks too.

7:09
So check that out, swingtradingthestockmarket.com and in doing so, you support this. Podcasts that continue to provide great content to you each and every week. So you get that, that’s definitely gonna help you out. But just in terms of general trade setups, when we’re printing these new all-time highs, but you’re not getting a lot of stocks that are going after it, you’ll see some stocks that look like, OK, they’re gonna make some great breakout plays, but the market’s going up and down, up and down every day.

7:34
Can we really rely on these breakout plays, especially when there’s such low volume and such little conviction in the market in general? No, the breakout plays are gonna be. Very difficult to play. I’m even finding right now a lot of your trend plays are difficult to play. I’ve just got knocked out of a stock today.

7:49
It was Mastercard. I took a 1.9% loss on the trade. Fine, small loss, whatever. What’s crazy is how long I stayed in the trade, and usually I never do it. I talk about opportunity costs, but this thing kept hugging the trend line and acting like it wanted to bounce. Never did. And then of course when the FOMC statement came out today, I got knocked out of it, but I was trying to play this bounce off of a long term trend line.

8:10
Go all the way back to March of 2020 and it wasn’t breaking it, but it wasn’t bouncing off of it either and it was really every day I was like, OK, do I just go ahead and get out of the stock because I’m wasting my time being in it if it’s not going to balance, but every day it kind of give you a little bit of hope and then the next day would pull back, give you a little bit of hope the next day and then pull back until today it finally just stopped me out.

8:30
But I had also been tightening that stop because I wasn’t willing to give it as much wiggle room as I had been given it originally when I got into the trade. Another one waste management, textbook continuation triangle pattern. Now, typically these kinds of charting patterns break hard to the upside.

8:47
Waste management broke out of it yesterday, but what does it do today? It gives it all back, but you’re seeing a lot of breakouts giving it all back because there’s not a lot of conviction for the market to really expand price. Yes, it may make marginal. new all-time highs, but it’s not like blazing through the previous all-time highs and setting a new framework for the stock market to work off of going forward.

9:07
Instead, it’s just making marginal new highs, and then it pulls back a little bit and then it’ll take a couple of weeks, maybe make a new high, and that can be very difficult to deal with. And so a lot of times what I like to look for, I like to look for the stocks that I’ve been creating a nice good base. Maybe it’s sold off of late, maybe it’s taken a beating over the last few months, but it tends to be those sectors or those stocks that have the most opportunity left in a market that is almost priced for perfection.

9:36
Case in point, Twitter had a big sell off back in late April, then it kept selling off thereafter for much of May, and then it started. Forming a nice base and a cup and handle pattern well off of the all-time highs, nowhere near it and still isn’t, but once it broke out of that cup and handle pattern, I took a long position.

9:53
I’ve made a few percent on it. Has it been an incredibly fast and crazy trade? No, it hasn’t, but it’s been a steady plot or higher. Now if you’re looking at it from the sector standpoint, what sector has actually been doing really good right now, it’s the energy sector. And the one thing about the energy sector that’s different from all the other sectors, it’s nowhere near its all-time highs.

10:12
You take a chart like XLE which represents the energy sector, and some of the biggest energy plays, it made its all-time highs back in 2018, hasn’t been anywhere near it since. In fact, it’s got about another 25-30% before we can even start talking about all-time highs in XLE.

10:28
But what sector is doing the best right now? It’s the energy stocks. Why? Because they formed a nice base and they’ve been rallying hard because there’s not a lot of opportunities to really trade some of these other stocks like your big tech stocks like Apple, like Amazon, Google, Microsoft, they’re pretty much priced for perfection at this point in the rally, but not energy.

10:46
Energy still has a lot of room to run, so it’s drawing a lot of attention. Some of my best trades this year has been in the energy sector. Some of my worst trades have been in the. Technology sector and I love trading technology. I do. I get technology. I understand the technology so sometimes it’s easy to gravitate what you understand the most.

11:03
I’m probably the most disinterested person when it comes to energy stocks, yet I’m finding the opportunities to trade in them. I’m trading XOM right now, best trade in my portfolio. I’ve traded Slam Burge plenty of times this year. It’s done pretty well. Hess, done well. In fact, most of my gains this year have probably come from trading energy and so.

11:22
So the reason why I talk about that in in relation to the best trade setups is oftentimes when the market’s price perfection, you wanna start looking for some of the more underrepresented sectors in the market that might be basing and seeing some buying interest start to pour in.

11:37
Energy has been doing that for a few months now and it’s been a really good place to be parking some money in as you try to find ways to make money in a stock market that’s willing to push well beyond the current all-time highs. There’s a number of software stocks out there too right now. You got like Splunk, you got CRM stocks that have taken a beating for various reasons, and now they’re starting to base and those are gonna be some of the ones that I’m looking at going forward as well because maybe they don’t work out, but at least there’s some good reward to risk ratios.

12:07
Now, you can find plenty of stocks out there right now trading at all-time highs that have some really good tight stops on them. The problem is there’s not a lot of reward to the upside, so you’re really not getting into any trades that have an advantageous reward to risk ratio.

12:23
But you take something like Splunk where it’s trading in the 120s, there’s room for that thing to go all the way up to the 150s right now before it even sees much resistance. So I’m not saying that for you to go buy Sluk, OK? You gotta do your own due diligence on that kind of stuff. But as for me as an individual trader, I’m looking at those kinds of stocks.

12:42
Right now that have a lot of upside that it can take on even if the market doesn’t really push that much higher, maybe this stock has a higher beta or the opportunity to recover some of its losses from earlier in the year. So again, to kind of wrap this up, yes, different trade setups work better in different kinds of markets from the very simple standpoint of, you know, in a head and shoulders pattern which has been disastrous over the past 4 to 5 years.

13:07
You could probably even go back 10 years. Since the March 2009 bottom head and shoulders patterns constantly see a little bit of a confirmation. They’ll break just below the neckline and see this incredible amount of buying power that comes right in thereafter. Head and shoulders patterns have not been very reliable.

13:22
It’s sister pattern, the inverse head and shoulders pattern has been much better because it’s in the right kind of market for those kinds of patterns to work in. And then you drill down a little bit further, Bull flag patterns and continuation triangles are gonna work in markets where there. Very strong patterns. So those patterns did the best when you go back to the bottom of March in 2020 and all the way through January of this year.

13:44
It doesn’t mean that bull flag patterns can’t still work here and there’s still some pretty good bull flag patterns, but there needs to be some clear reward opportunities in the process and can’t just rely on the fact that, well, I can keep the risk tight because you need to make sure there’s some reward opportunities there too. There’s not a lot of resistance to the upside or a lot of choppiness.

14:02
You enjoyed this podcast, encourage you to leave me a good 5 star review on the Apple app or Amazon or Spotify or whatever platform that you listen to me on. Make sure you’re, you’re subscribing because it helps me to continue to expand the audience and to grow this podcast and it, and it supports this podcast as well.

14:21
So that means the world to me when you guys. Do that. I’m glad to be back. I appreciate you guys being patient while I took a week off to get married. Also, make sure to keep sending me your questions. Let me know what you want answered when it comes to stock market trading and finding success in the stock market, and I will make sure to do my very best to put an entire episode out there on your question.

14:41
Thank you guys, and God bless. Thanks for listening to my podcast, Swing Trading the stock market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world. With your membership, you will get a 7 day trial and access to my trading room, including alerts via text, And WhatsApp.

15:02
So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/trading-block, and follow me on SharePlanner’s Twitter, Instagram, and Facebook where I provide unique market and trading information every day. If you have any questions, please feel free to email me at ryan@shareplanner.com.

15:22
All the best to you and I look forward to trading with you soon.